All Forum Posts by: Michael Ashe

Depends on your circumstances and goals. House hacking for a bit of added cash flow without moving?

Based on that math yes, you'd clear a couple hundred dollars after all debts and expenses, not the worst spot to be if you're not necessarily needing the cashflow/trying to live off of it, but instead are focusing on playing the long game. 

Knoxville has a lot of runway for growth and by picking up 1 each year or 2 is a solid long term play. 

Lower rates will lower rents over time. People will choose to buy, if they can (Supply is still around 1/2 of what it was at it's peak and people are moving in Knoxville area at an increasing rate).

I expect rates will start falling a lot more in 2025 if the Republicans take the Senate by 5 or more seats and the House by 12 or more. However, I also don't believe there will be a lot of equity building in the next 3-7 years due to lack of supply. Meaning, it will go up some, but not at the rate it has in the past 10 years. We don't have a lot of builders here in Knoxville.

Also, many investors have been lobbying for High-Density legislation. Therefore, multi-family will take some demand from SFR. Polls have shown younger people prefer less, even if it costs more.

As municipalities expand, then contract, then expand, and so on... equity will grow at similar rates respectively.

Michael,

This is a tough one. It all depends on your risk tolerances. If young and willing to take risk, renting is an option. Even if the market corrects a bit in 2024-2025, you'll probably be slightly ahead if you can get it rented at those dollars. If more on the conservative side, then I would say you need to take into consideration all your debts. A DTI (Debt-to-Income) ratio of 50% or lower, when including all expenses you pay/month, would be safe IMHO.

You're in a good market for rentals for a few years. Supply hasn't caught up to drive rents down like they will in larger cities. However, keep in mind, once they do you'll need to be prepared for the worst. So plan for the worst in a few years and hope for the best.

Good luck!

@Michael Ashe

This is a great question and the answer really depends on your scenario. I think we can both agree that a few hundred dollars a month in cash flow is not going to drastically change your financials, but holding onto this property for 5-10 years could. I personally, would keep the property and hold onto it as long as I can. With that said, there are a few scenario's in which that may not be the best choice for you. 

If you have good amount of equity in the property, you may be better off selling and redeploying into a few additional properties. As far as your finances, if missed rent or vacancy would stretch you, it may not be in your best interest to hold onto it. 

Weigh the pros and cons and make a decision from there. The only known factor is you cant capture appreciation if you no longer own it. :)

@Michael Ashe Okay.  But, it seems one "sticking point" is the change in property taxes.  I know that parts of the country you lose your homestead discount, change rate for non-owner occupied, or just nothing (like my market).  So, you might want to research that directly for your location.  Or, was the comment you referring specific to your location?

Better to act on correct info.

Check out how much you could make by looking into what others charge in your area and think about throwing in bonuses for folks who stick around longer or if you offer some cool extras. Then, figure out what it's gonna cost you – your mortgage, any possible property tax bumps, pricier landlord insurance, plus regular upkeep, fixes, and fees if you've got someone managing things. Toss in some extra cash for those times when no one's renting. Now, subtract all that from what you're bringing in. For instance, if you're thinking $2,000 in rent but have a $1,500 mortgage, $200 extra in property taxes, and $100 for insurance, plus a 5% chance of no one renting and another 10% set aside for fixes, your estimated cash flow might end up at -$200.

Hi Michael, 

This is assuming that you are staying in your primary home and house hacking. I was a little confused on the way you worded your question because it seemed like you were asking how to calculate cashflow if you didn't live in your home and fully rented out your house. 

Cashflow=Rental income- expenses

Rental income: how many rooms will you be renting out? How much can you get for it? Check Facebook Marketplace or craigslist (rooms for rent). 

Expenses: 

1. Mortgage

2. Property Taxes (never heard of property taxes increasing if you convert a house into a house hack. Very weird... property taxes typically increase when there is a tax reassessment (renovations done, ADU was added, etc...) So maybe that's what people meant when they told you your property tax may go up (i.e. adding an ADU to rent out). But if you keep your house as is, then there shouldn't been a property tax hike.

3. lawn care, utilities, parking spot 

4. saving up for capex expenses (i.e. 5-8% of rental income depending on the condition of your home)

5. Repairs & Maintenance (5-8% of rental income)

Take a look at the BP rental calculator to see all the potential expenses you may have while house hacking. 

Note: if the cashflow comes out negative, you technically aren't "losing", because your tenant is at least partially covering your biggest monthly expense which is housing...